Forty-seven states have enacted some form of Structured Settlement Protection Act, devised to protect plaintiffs who enter the secondary market with the intent to sell their structured settlement or annuity. Because most of the plaintiffs who entertain this idea are in dire financial straits, some secondary market factoring companies have been able to profit heavily at the expense of the plaintiff or payee.
The bottom line is that any good secondary market company should already have asked for the information required by the California SSPA. But the fact is, many don’t, which is why questionable deals are often approved. While the various state SSPAs lack uniformity, most share the same basic legislative scheme. In line with IRC section 5891, the state SSPAs provide that structured settlement payment rights transfers must receive advance court approval. Under each of the state SSPAs, key terms are defined, procedures for obtaining court approval are spelled out, and required notices, disclosures and findings are established.
California legislators, however, have made revisions to their state’s code in recent years to go further to protect payees. Although all of the state SSPAs incorporate the "best interest" language, the California statute is the only SSPA that defines best interest. Section 10139.5 (b) of the California Insurance Code lists 15 factors that judges should consider when determining whether the proposed transfer should be approved. This means California judges must receive information such as the payee’s age, marital status, ages of minor dependents or children, other income or financial resources, and status of child/spousal support, and information about previous transfers or attempted transfers, among other things.
One of the biggest differences is that payees must also be advised to seek independent legal or financial advice regarding the transaction and, under the law, the cost of that advice, up to $1,500, will be paid by the transferee, the person or entity to whom you have agreed to transfer and assign the payments in question.
To reiterate, this version of the SSPA shouldn’t scare any secondary market companies worth their salt. In fact, the companies should be working together to help define best interest, educate their judges to what this means for payees, and encourage practices such as multiple bids so that payees have as much knowledge as possible before making such a big financial decision.
Jay Fisher is co-founder of Vantage Capital Consultants, a purchaser of structured settlements and annuities.